Newnations Prescriptions

The economic crisis in Europe is preventing Bulgaria – the poorest EU member state – from achieving higher standards of living and the country looks set to remain blighted by corruption and poverty, which in turn is fuelling ultra nationalism.

In the run-up to Bulgaria’s membership to the EU in 2007, politicians in the Balkan state promised citizens that accession would bring generous development aid from Brussels and foreign investment, raising the country’s wealth and standards of living.

To begin with, that’s what happened. The year after accession to the EU, Bulgaria’s GDP per person reached 44 percent of the EU average in 2008, from just 28 percent at the start of the decade and living standards improved slightly. But the global financial crisis ended the boom.

Heavily indebted, Bulgaria’s government has imposed strict austerity measures since 2008, including widespread redundancies and wage cuts for state workers. The government’s popularity has plummeted and, according to a 2011 survey by the MBMD polling institute, two thirds of Bulgarians believe the current government led by Boyko Borisov has failed to improve the situation in the country. Finance Minister Simeon Dyankov insists on slavishly doing the International Monetary Fund’s bidding, depleting the pockets of ordinary working people, and the government is increasingly relying on political support from the fascist Ataka (Attack) movement, a xenophobic and extreme nationalist party that has its own paramilitary militias.

Bulgaria is in a fragile state and the country’s transition to democracy and a market economy after the collapse of communism in 1991 has been difficult. Throughout the early 1990s Bulgaria was unstable and there were many public sector strikes against the new government. The former communists remained a powerful influence and although the country become more politically stable by 2000, economic reform was moving at a snail’s pace. Improvements weren’t seen until Bulgaria’s former king, Simeon II, became prime minister in 2001. He pushed on with market reforms in an effort to meet EU economic targets and by the time his stint as PM was over in 2005 unemployment had fallen and inflation was under control. But despite the achievements of Simeon’s policies, living standards in Bulgaria were still very low.

Joining the EU has not brought Bulgaria what it hoped for. EU officials set tough entry requirements amid concerns about the high levels of corruption and organised crime in the country and when the Bulgarian government was found to have done too little to address these problems in 2008, the EU suspended aid worth hundreds of millions of euros. In 2010, France and Germany announced that they would block Bulgaria from joining the Schengen passport-free zone until the country had made “irreversible progress” in tackling crime and corruption – something it has still failed to make a dent in. On May 30 this year, the European Central Bank released a report saying that none of the eight countries on the waiting list to join the euro – Hungary, Bulgaria, the Czech Republic, Latvia, Lithuania, Poland, Romania and Sweden – currently meet the required standards.

Now, partly due to the fact that Bulgaria hadn’t developed fast enough to meet various EU standards when it joined the bloc in 2007, the country’s export market is floundering. Bulgaria used to be a major exporter of nuclear-generated electricity in south-eastern Europe, but before accession the EU requested that four out of six reactors at the crucial Kozloduy nuclear power plant be shut down over concerns about safety. Now the country doesn’t have enough electricity to export significant volumes in winter and the power market is plagued by export caps as well as corruption. In February, several local grid operators in south-eastern Europe cut exports during a spell of extreme cold. Traders lost money, which has never been recouped. More recently, Bulgaria’s power regulator said it would raise the export fee by around 4 euros per megawatt-hour (MWh) to 15.7 euros, around a third of the whole output cost.

In the past few years power markets have been opening up in south east Europe, where grid connections are good and there is potential for prices to rise. But traders say that doing business with Bulgaria, Romania and Greece is becoming too difficult. Increasingly fed up with limits on opportunities in central and south-eastern Europe, a number of them have started to look to Turkey and further east. As a gateway between the Middle East and Europe, trade of all kinds through Bulgaria has a significant impact on the kind of goods and services that travel beyond its borders. As Europe withholds aid, Bulgaria is accepting investment from Turkey and Qatar that could open up Europe to more business from the East and possibly give Bulgaria less incentive to do the EU’s bidding.

On May 25, Bulgaria, Turkey and Qatar agreed to build a 300-km highway that will connect the Danube River town of Ruse, which is on the border with Romania, with the southern town of Svilengrad, which is on the border with Greece and Turkey.

“This is not an EU-backed project,” said Bulgarian Prime Minister Boiko Borisov. “It will be realised as a joint project with the participation of the three countries.”

The day before that announcement, Qatar’s Prime Minister Sheikh Hamad Bin Jassim al-Thani said his country would deposit $200 million at the Bulgarian Central bank as a guarantee that it is serious about investing in the Balkan state.